Australia property prices were inflated by the Government's First-home buyer stimulus, which should prevent any significant price growth in the short to medium term, despite the general shortage of housing in the country, according to a leading banker in the country.

Phil Chronican, Australian chief executive of ANZ Bank, has said the Government's first-home buyer stimulus drove up property prices, and warned that mortgage arrears would remain high as consumers struggled with cost of living pressures.

The Australia property market has cooled in recent months, following a year of strong capital growth, which is good news for people looking to buy a home in Australia. But despite the slowdown in the market, Chronican expects prices to remain flat rather than fall, largely due to the lack of Australian homes in relation to demand.

ANZ estimate that there is a shortfall of 230,000 homes in Australia, mainly because of a lack of suitable land for the construction of new homes.

Speaking at the American Chamber of Commerce lunch in Sydney, Mr Chronican said: “If we really want to help people into homes, we need to address the supply-side issues, not add to the demand that drives prices up.

“We have seen what can happen when [Governments] get it wrong in the case of the first-home owner's grant. These grants were capitalised against house prices so quickly they didn't so much benefit first-home buyers [but property seller's].”